1 What is money?

Answer: Any device that serves as a direct means of payment for goods and services – may or may not require the use of visible tokens such as notes and coins
 
 

2. Distinguish money from near money.

Answer: Money provides immediate liquidity i.e. can be used for payment. Near-money entails other financial assets such as time deposits which cannot be used directly for carrying out transactions.
 
 

3. Likewise distinguish a commodity from a fiat currency.

Answer: a commodity currency has inherent value which facilitates its acceptance as money e.g. gold and silver.

A fiat currency has no inherent value (as a commodity) and its acceptance is based purely on confidence.

Thus a €50 euro note for example is representative of a fiat currency. People accept it as a means of payment because they have confidence that it can be passed on in turn as a means of payment.
 
 

4. Can an economic system operate without money?

Answer: Yes! In a barter economy goods and services are traded directly for other goods and services. It is still associated with primitive economies (based on self-subsistence).

However it would not work efficiently in a modern developed economy.

Electronic means of payment do not require an indirect medium (such as notes and coin) to act as money. However they still entail the use of money (through electronic debiting and crediting of accounts).
 
 

5. Outline the four major functions of money.

Answer: 1) As a means of exchange facilitating transfer of goods and services. 2) as a unit of account providing a common means of valuation. 3) as a store of value (though other assets such as property can also be used) 4) as a means of deferred payment enabling the settling of debts (e.g. loan repayments).
 
 

6. Which of the following represent money (i) €50 note (ii) a bank cheque (iii) a traveller’s cheque (iv) a current account (v) a savings account (vi) financial shares (vii) a credit card?

Answer: (i), (ii), (iii), (iv), (v) possibly if money can be withdrawn on demand (vii)
 
 

7. If a €20 note is money why can I not use it to pay my bus fare?

Answer: This represents a problem of divisibility (one of the desirable properties of money). Smaller denominations (in coins) are required for such a transaction.
 
 

8. Distinguish the role of the following financial institutions
 
        (i) Insurance Companies (ii) Commercial Banks (iii) Building Societies (iv) Credit Unions

        (i) provide general type insurance (cars homes, theft etc) or life assurance requiring the payment of regular
            premiums.
        (ii) Commercial Banks provide a general retailing service for the banking public
        (iii)Building societies specialise in mortgage finance (for property)
        (iv) Credit unions operate on a voluntary non-profit basis and can lend at lower rates of interest than banks.
 

9. What are the major functions of a Central Bank?

Answer: To issue currency, manage exchange rates and gold reserves; to act as banker to the government and to other financial institutions and to exercise monetary policy.
 
 

10. How is the role of our Central Bank now changing within the Eurozone?

Answer: Most of the functions are exercised now by the ECB e.g. issuing currency, controlling exchange rates and interest, setting bank regulations etc.
 
 

11 Distinguish clearly monetary from fiscal policy.

Answer: monetary policy relates to money supply, inetrest rates and exchange rates (which can be controlled through the Central Bank); fiscal policy relates to tax, government expenditure and borrowing which is directly controlled by the Government.